Supply chain and logistics management are success drivers in the retail market. Several retailers invest in both to increase sales and profit margins. Logistics focus on the delivery of commodities regarding the expectation of customers and prospective buyers. Competition in retail businesses globally gives customers the mandate to demand the right quality products at relatively lower prices. Companies want to make profits while maintaining their clientele. This calls for proper investment in supply chain management and logistics systems. Tesco is an example of a retailer in the UK that has perfected its supply chain and logistics system for its customers.

Jack Cohen formed Tesco in 1910 with TESCO tea as its first product. In 1929, the company opened the first store that operated on economies of scale with the slogan ‘pile it high and sell it cheap.’ In 1948, TESCO opened its first self-service store after officially publicizing the previous year. The first Tesco supermarket was opened in 1956 and a couple of chain stores in the 1960s. Tesco business declined in the 1970s when customers got distracted by their slogan, and the tarnished reputation, which followed the sale of some stores to Imperial Tobacco Company. This decline caused the closure of some Tesco stores.

Today, Tesco Company is a leading retailer in the UK market specializing in groceries and general merchandise. The company has about 450 000 employees with 2,291 stores spread in 14 countries in Asia and Europe (Zhao, 2014, 184). Based on gross revenues, Tesco is the world’s third-largest retailer and ninth by net revenues. Tesco is diversified and has various chains under its name; Tesco Extra, Tesco superstores, Express, Metro, Dark Stores, One Stop, Jack’s, petrol stations, home shops, and other subsidiary businesses like banks and telecom (Zhao, 2014, 184). Tesco focuses on gaining the loyalty of its customers by providing high-quality products and services through innovation. In contrary to the initial slogan, Tesco improves continuously to meet the changing customer demands. Important to note is that Tesco leads the grocery market in several countries it operates.

Supply Chain and Logistics Management

Supply Chain

Figure 1: Tesco Supply Chain

The diagram above illustrates Tesco’s target of ensuring a continuous supply of goods to its customers. The chain involves leading players, suppliers, Tesco depots, stores, and final users (Dissanayaka, 2007, 7). A supply chain network is a system of organized people, resources, information, and activities used in the shipment of virtual or physical services and products from suppliers to the final consumers (Fernie and Sparks, no date). These networks satisfy customer wants by efficient resource utilization in labor, inventory, and distribution (Coyle, Langley, Novack and Gibson, 2016). In reality, the chain might be more complicated than the simple illustration. However, Tesco thoroughly researches its products, suppliers, and customers. These findings are essential in the management of the supply chain and logistics operations.

Figure 2: A simple illustration of Tesco Supply Chain.

The supply chain of Tesco is driven by certain factors; inventory management, transportation, pricing, facilities, information, and sourcing (Sparks, 2018). Tesco has many distribution centers and stores across the world. Tesco Hypermarkets, metro, express, Extra, online stores, superstore are critical to the success of its supply chain. Tesco plans its transportation systems effectively through multimodal means to ensure customers get products at the same price. Also, the stability of prices, worldwide sourcing, and effective customer communication are other factors of the success of Tesco’s supply chain.

Tesco has perfected its supply chain by focusing on three significant issues. The company attempts to increase the availability of products to its customers at all times (Coyle, Langley, Novack, and Gibson, 2016). Continuous replenishment (CR) adopted in 1999, has ensured quick stock turnover at multiple stores owing to the many orders by Tesco customers (Fernie and Sparks, no date, 113). Besides, Tesco has managed to minimize the wastage of food by quickening deliveries. Technology has ensured high quality and fresh deliveries by Tesco, something that many customers find appealing (Sparks, 2018). The stability of the business has also provided the efficiency of their supply chain, as suppliers are attracted to working with them. A SWOT analysis of Tesco supply chain reveals that strengths offset weaknesses hence success.

Tesco Supply Chain SWOT Analysis

Strengths

§ A leading retailer in the UK and third-best in the world.

§ Strong brand identity.

§ Global participation

§ Cost leadership

§ Application innovation and technology.

Weaknesses

§ High dependence from the UK market.

§ Enormous costs of logistic systems.

§ Bad debts.

Opportunities

§ Possibility of global expansion

§ Wider online presence.

§ Partnerships with other companies.

Threats

§ Competition from Wal-Mart

§ High tax rates

§ High costs of raw materials.

Table 1: Tesco Supply Chain SWOT analysis

Logistics Management System

Supply chains require proper logistic operations inclined towards satisfying customer needs (Sparks, 2018). Logistic management uses planning, control, and implementation of the distribution and storage of goods, information, and services to the final consumer (Fernie and Sparks, no date). The process begins at raw material to the delivery of products to the final consumer. Organizations better their supply chains by focusing on addressing the expectations of their customers concerning the delivery efficiencies of goods and services (Dissanayaka, 2007, 14). To do this, organizations focus on three elements; planning, implementation, and control of the flow of goods and services to meet customer needs (Fernie and Sparks, no date, 104). The logistics system elements of Tesco include continuous replenishment, transportation, warehousing, inventory management, information technology, and centralization.

Continuous replenishment (CR)

This is a system developed by Tesco in 1999 to facilitate multiple deliveries to customers (Xie and Allen, 2013). A batch data is replaced with a flow mechanism that allows the sending of numerous orders to suppliers (Fernie and Sparks, no date, 113). Continuous replenishment increases the stock turnover rate. Since 1999, Tesco has used this system to better both domestic and international operations in its supply chain. This method also allowed Tesco to use factory gate pricing since suppliers reduced transportation costs, reducing the price of commodities.

Figure 3: Tesco Logistics Management System

Centralization

Initially, Tesco used the Direct to Store Delivery method (DSD) in the 1970s (Sparks, 2018). This system allowed suppliers to deliver goods at stores of their choice. DSD impeded centralization and implicated the guarantee of quality (Fernie and Sparks, no date, 107). Tesco decided to adopt a centralized delivery system that gives it control over prices and quality assurance. A linkage between head offices and all stores ensured timely deliveries of stock and guarantee of quality.

Information and Technology

Tesco uses technological innovations in its operations. For instance, packaging materials used by Tesco increase the life of products in the stores and warehouses (Lin, Zhu and Peng, 2018). The materials double the life of arioso fresh produce and other products in stores. Facilities contribute significantly to the success of supply chain management at Tesco. Such facilities include independent petrol stations at most outlets in Hungary, Czech Republic, Slovakia, and Poland. The company eliminated some unnecessary and inefficient processes in its supply chains to affect customer focus strategies.

Transportation

Tesco’s transport policy makes it one of the most successful companies in logistics management. Traditionally, Tesco depended on trucks to deliver goods to stores and sourcing products from suppliers (Lin, Zhu and Peng, 2018). Tesco began using rail services in 2011 to reduce traffic jams on the road by removing 40,000 trucks off the streets. Rail transport is used to transport goods from central depots to stores and supplies on return journeys. This venture led to the partnership with Stobart Rail and Direct Rail Services. The company also uses vans for home deliveries, ships, and air means for international shipments.

Warehousing and Packaging

The warehousing methods at Tesco reveal its detailed logistic operations. At regional distribution stores, room temperature storage is used for groceries that do not depend on moisture. Tesco also uses bond warehousing for geographical distributions. National distribution stores are used to store durable and slow-moving goods all over countries. Such goods include hardware, construction, and textile products. Composite warehouses are used for the storage of fresh and perishable goods. Optimum conditions are available for frozen goods since the temperature is regulated. Distribution of such products also happens in trucks and trains with temperature regulations.

Inventory management

Tesco has improved its inventory management system to remain competitive in the retail industry. Since customers choose which retail shops to buy from, competition has increased to keep customers. Research suggests that shoppers are likely to shop in another store after missing their desired product in the first shop (Xie and Allen, 2013). The first shop is expected to lose revenues. Efficient inventory management ensures stock availability in the industry. Tesco adopted the Automated Store Ordering (ASO) system that enables stock replenishment according to the convenience of customers (SPARKS, 2018). The efficiency of this system led to the development of Electronic Point of Sale (EPOS) technology. These systems are described as technological service orientations that improve delivery services in the chains.

Furthermore, ASO has been inclined towards increasing the availability of Tesco products in the market for several years. It is interpreted as a workload variant of the distribution process. The automation of checkouts and computerization of stock controls at Tesco are other elements of its efficient inventory management systems. Besides, the company’s website is an essential asset of information sharing to customers. Since its formation, the company has acquired 250 more stores across the UK (Dissanayaka, 2007, 16). The services of Tesco have become crucial to customers that over a million of them use those services. This comprehensive logistic operation management by Tesco makes it the market leader by using its inventories, transportation, and information. The effect is the development of the companies supply chain.

SCM Systems Implementation Challenges at Tesco

Retailers face several challenges in their supply chains ranging from changes in formats, technologies, competition, quality improvement, consumer choices, tastes, and preferences. Retail businesses often incur slippages in profit margins. For instance, Tesco in the 1980s when customers shifted to other shops due to Tesco’s association with Imperial Tobacco Company. Sometimes, there are inefficiencies in operations, difficulties in responding to trend changes, quality compliance, and single-channel integration. Tesco has an efficient supply chain regarding customer satisfaction but faces specific challenges as well.

Firstly, the primary distribution of Tesco has several drawbacks. For instance, suppliers preparing products, but Tesco trucks are not ready for loading and transportation (Zhao, 2014, 185). Supplier delivery would be more efficient in such scenarios. However, supplier unreliability also becomes a challenge to implementing given supply chain models in retail businesses. Secondly, RFID tags are expensive despite their immense significance in the identification and security of Tesco trucks (Heller, 2017). The use of these tags in all items is practically impossible, considering the bulk. The RFID technology tags may also be faulty if it contacts metals or liquids (Xie and Allen, 2013, 57). Thirdly, the global expansion of Tesco faces challenges since its supply chain may not fit in some countries, primarily due to cost considerations. The problem of exploring new potential markets and outsourcing during globalization affects supply chain structures.

Competition is another major challenge that Tesco deals with implementing its supply chain. Other large retail companies such as Wal-Mart and Kroger groceries have adopted means of creating competitive advantages in the retail industry through supply chain management. Significant differences exist in online deliveries and shopping. Tesco faces the challenge of aligning to customer needs and demands to improve its online shopping experience for better competitiveness. Nonetheless, Tesco strategies have been effective in cushioning them against adverse competition effects, making it a leading retailer in the world.

Radio-frequency identification (RFID) technology

The implementation of technology in supply chain management is considered a step towards transformation. Retailers use RFID technology despite several implementation problems associated with it (Heller, 2017, 10). However, RFID improves inventory management, reduces costs of labor, and improves customer satisfaction increasing sales and stock turnover (Dissanayaka, 2007, 18). Tesco began using RFID technology in 2003 for various roles.

Tesco uses the technology in product tracking, especially during shipments, online procedures, and home van deliveries. The technology assures security and identification of Tesco products and trucks (Heller, 2017, 9). The most crucial role of RFID is its use in planning and control of several aspects of Tesco’s supply chain. It reduces costs, increasing productivity, and speed at the company (Xie and Allen, 2013, 58). RFID is vital in retailing, considering the revolution it caused in the market. Its influence on the supply chain gives it an edge over other technologies since it directly implicates profit margins.

Tesco Green Logistics

Green logistics is an essential aspect of the transformation of supply chain management in retail industries (Usha, Bentley and Pang, 2014, 1). Mega retail stores such as Tesco and Wal-Mart are under pressure from their consumers to provide environmentally friendly solutions to reverse logistics. Sustainable logistic operations are considered as a corporate social responsibility of companies (Usha, Bentley, and Pang, 2014, 1). Some retailers anticipate increases in consumers’ environmental consciousness and have invested in research and development to improve environmentally-friendly practices. According to Tesco, green logistics package cover reduction in emissions, greener products, zero-carbon stores, and appropriate carbon labeling in all products. Tesco also managed to half its energy consumption from 2000 to 2008 (Beavis, 2020). Tesco considers this package a climate change initiative in retailing in both reverse and forward supply chains.

Tesco developed a sustainable supply chain with 1500 suppliers. Tesco deals in fresh produce and grocery products and requires all its suppliers to reduce carbon dioxide emissions in production. Tesco asked suppliers to identify carbon hotspots in the chain and give best practice solutions (Beavis, 2020). There is no clear information that describes how Tesco manufacturers intend to reduce carbon dioxide emissions. However, Tesco manufacturers are required to reduce considerably the amount of energy they use for production (Usha, Bentley, and Pang, 2014, 15). Tesco suggests the use of renewable energy in a bid to support its green supply chain. Some renewable energy proposals by Tesco include combined heat and power (CHP), LED car park lighting system, sun-pipe lighting, and toilet flushing with harvested rainwater.

Tesco distribution also adheres to its green logistic operations. The company uses rail transport instead of the road to reduce carbon emissions and traffic jams (Usha, Bentley and Pang, 2014, 17). Besides, Tesco also adopts zero-carbon practices in stores such as replacing leaky refrigerators. Natural alternatives are being used instead of hydrofluorocarbons in stores. Tesco projects a zero-carbon business by 2050 (Beavis, 2020). However, the customers pose a challenge to this dream, which is why the company chose to work with suppliers. Nonetheless, Tesco has a green living website for its customers and prints carbon on its products to ensure they make informed choices while buying. The company focuses on reducing carbon emissions and usage in its green logistics.

In conclusion, supply chain management has transformed the retailing industry significantly. Logistics operations of supply chain models determine the level of customer satisfaction and hence, sales of products and services. Tesco’s efficiency is attributed to the efficacy of its logistics management systems. However, some challenges should be anticipated in supply chain management. Retail companies should consider offering sustainable solutions to such problems. A retailer that succeeds in overcoming its challenges can have competitive advantages, just like Tesco.

References

Beavis, S., n.d. Tesco – Britain’s Biggest Retailer Targets Green Growth. [Online] the Guardian. Available at: <https://www.theguardian.com/sustainable-business/britain-biggest-retailer-green-growth> [Accessed 14 May 2020].

Coyle, J. J., Langley, C. J., Novack, R. A., & Gibson, B. (2016). Supply chain management: a logistics perspective. Nelson Education.

Dissanayaka, P. P. (2007) ‘Supply chain of Tesco’, Supply Chain Management, (June 4), pp. 1–21.

Fernie, J. and Sparks, L. (no date) Logistics and Retail Management.

Lin, C., Zhu, J. and Peng, J. (2018) ‘Analysis and Solution of the Problems in the Distribution of Suning Tesco,’ Transportation Management, 1(1), pp. 19–25. doi: 10.24294/tm.v1i1.256.

Sparks, L. (2010) ‘Supply chain management and retailing,’ Managing Football: An International Perspective, 11, pp. 151–167. doi: 10.4324/9780080949765.

Usha, R., Bentley, Y. and Pang, G. (2014) ‘Research article for possible publication in JCP,’ pp. 1–27. Available at: http://irep.ntu.ac.uk/id/eprint/27381/1/PubSub4975_Ramanathan.pdf.

Xie, Y. and Allen, C. (2013) ‘Information technologies in retail supply chains: A comparison of Tesco and Asda’, International Journal of Business Performance and Supply Chain Modelling, 5(1), pp. 46–62. doi: 10.1504/IJBPSCM.2013.051648.

Zhao, S. (2014) ‘Analyzing and Evaluating Critically Tesco’s Current Operations Management,’ Journal of Management and Sustainability, 4(4), pp. 184–187. doi: 10.5539/jms.v4n4p184.

TESCO: SUPPLY CHAIN AND BUSINESS LOGISTICS SYSTEM

Background Information